Consolidation changes the game

Consequences of governmentwide initiatives alter the federal contracting landscape

The success of the Air Force’s consolidated quarterly purchases of information technology from a few select vendors caught Kevin Carroll’s attention. Carroll, the Army’s program executive officer for enterprise information systems, began using the Air Force contracts to take advantage of the large discounts available through that service’s strategic sourcing program.

But soon afterward, Carroll realized the Air Force’s model wouldn’t work for the Army, so he took consolidation in a different direction.
Unlike the Air Force, which has a fairly centralized management structure, the Army has bases worldwide that need to manage their own procurement activities, Carroll said. Forcing those bases to buy through a few select vendors would be disruptive.

Carroll’s procurement strategy opened the Army’s contracting gates to more than two dozen of vendors through large contracts, such as the $20 billion Information Technology Enterprise Solutions for services and the $5 billion Army Desktop and Mobile Computing awards. Carroll said the contracts’ discounts will save the Army about $50 million in two years. The discounts are not as low as those the Air Force is getting, but the multivendor contracting awards suit the Army organization, he said. “That’s the trade-off for us.”

Many agencies have been consolidating their IT requirements to get larger volume discounts from vendors and relieve pressure on their acquisition employees. That trend shows no sign of slowing. The General Services Administration’s SmartBuy enterprisewide software license initiative, the Office of Management and Budget’s strategic sourcing program, contract bundling and increasingly large contract task orders are further examples of that trend.

When consolidation is handled well, it offers many advantages, said Phil Kiviat, a partner at consulting firm Guerra Kiviat and former member of the CIO Council. Those benefits include lower costs for agencies, better terms and conditions for the delivery of services, and fewer redundant contracts and purchases. Consolidated buys let contracting officers focus on agencies’ most complex purchases.

Many experts also say consolidation is disrupting long-standing agency approaches to procurement.

“People tend to feel a better sense of their needs,” said Angela Styles, former Office of Federal Procurement Policy administrator and now a partner at Crowell and Moring. Styles said procurement officers don’t like being told whom to do business with.

Consolidation often causes unintended consequences. Those consequences flow downstream into what Alan Chvotkin, the Professional Services Council’s senior vice president and counsel, describes as the acquisition ecosystem. “Many people who don’t understand acquisition think their decision can be made in isolation,” he said.

Contract bundling

One consequence of consolidation is fewer opportunities for a growing number of small businesses, some experts say. Contract bundling, for example, often leaves small businesses out of the competition.

To be more efficient, agencies consolidate multiple contract proposals for similar products or services — a practice called bundling. A common motivation for bundling is that some needs are so similar that it makes sense to combine them. However, consolidating those needs inflates the size and scope of the final contract and often puts it beyond the reach of small businesses.

When small businesses can’t compete, the government loses the benefits of innovation that those companies offer, said Arthur Collins, the Small Business Administration’s director of government contracting. He said small businesses bring a disproportionately large percentage of innovative solutions to contract requirements.

“If you consolidate contracts and have fewer requirements and requirements that are so large that small firms cannot compete…you’re denying yourself access to the benefits of not only co petition but intensified, or increased, innovation,” Collins said.

His advice to agencies is don’t bundle if you don’t have to. Bundling might save millions and generate operational efficiencies, but agencies should also consider the benefits of competition and creating opportunities for small businesses, he said.

Some agencies have taken steps to eliminate bundling. The Veterans Affairs Department, for example, lowered the mandatory threshold for triggering reviews of bundled contracts from $2 million, as required by the Federal Acquisition Regulation, to $1 million.

Anthony Jimenez, president and chief executive officer of MicroTech, a service-disabled, veteran-owned business that won a $365 million contract from VA, said arguments to support consolidation via bundling and other means “may be true some of the time, but not in every case.”

The former Army contracting officer told a House subcommittee in July that bundling can save contracting officers time and effort and reduce government overhead. However, he said, those savings are often offset by the higher costs associated with large companies, especially when those companies hire subcontractors to obtain the diverse skills that large IT contracts typically require.

In addition to contract bundling, the consolidation trend is evident in the increasingly large task orders that agencies award under blanket purchase agreements and other types of contracts. The Acquisition Advisory Panel, which was authorized by the Services Acquisition Reform Act to recommend changes in federal acquisition regulations, focused on task orders as an area in which the government’s efforts to consolidate requirements has had an anticompetitive effect.

Big fish, little fish

The downstream effect of that and other forms of consolidation often goes unnoticed, said John Okay, former deputy commissioner of the General Services Administration’s Federal Technology Service and a partner at Topside Consulting. “The big fish are getting bigger, and the population of the little fish is declining.”

Styles said one effect of bundled contracts and strategic sourcing is that some companies, particularly small businesses, are shut out of the federal marketplace. “Not everybody can be a winner,” she said.

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